Burger King Stock (NYSE: BKW) Up 15% Pre-Market on Canada Tax Deal By Tara Clarke

Burger King stock (NYSE: BKW) shot up 15.34% a share pre-market on Monday morning after news late Sunday night that the fast food retailer is in negotiations to buy Ontario-based coffee-and-donut chain Tim Hortons Inc. (USA) (NYSE: THI). Tim Hortons stock was likewise up more than 19% before market open. The move marks the latest in a series of recent "tax inversion deals" - a merger between a U.S and a foreign company specifically designed to allow the U.S. company to move its headquarters out of the United States to escape America's high corporate tax rate. The post Burger King Stock (NYSE: BKW) Up 15% Pre-Market on Canada Tax Deal appeared first on Money Morning - Only the News You Can Profit From .

Burger King stock (NYSE: BKW) shot up 15.34% a share pre-market on Monday morning after news late Sunday night that the fast food retailer is in negotiations to buy Ontario-based coffee-and-donut chain Tim Hortons Inc. (USA) (NYSE: THI). Tim Hortons stock was likewise up more than 19%.

The statement released last night said that post-merger, the new company would be headquartered in Canada, where the largest market exists for it. Combined, BKW and THI would make the third-largest quick service restaurant company in the world, boasting about $22 billion in sales and more than 18,000 restaurants in 100 countries.

The move marks the latest in a series of recent "tax inversion deals" - a merger between a U.S and a foreign company specifically designed to allow the U.S. company to move its headquarters out of the United States to escape America's high corporate tax rate.

You see, the U.S. has the highest corporate tax rate in the industrialized world at 35%. That number has caused about 50 U.S. companies to reincorporate overseas to tax-friendly countries like Ireland over the last 10 years, about half of which are in the Standard & Poor's 500. Recently, even more companies have been making the move. Pfizer (NYSE: PFE) has been attempting to strike a deal with Britain's AstraZeneca Plc. (NYSE ADR: AZN) all year. On July 18, U.S. drugmaker AbbVie Inc.(NYSE: ABBV) announced plans to merge with Dublin-based pharmaceutical company Shire Plc.(Nasdaq ADR: SHPG) in a $54.7 billion deal. On June 15, Minneapolis-based Medtronic (NYSE: MDT) bought Ireland-based Covidien Plc. (NYSE: COV).

Comparatively, the Canadian federal corporate tax rate has been cut to 15% under current Prime Minister Stephen Harper. Public companies in the country also must pay provincial corporate taxes that can bring their combined federal and provincial tax rate to approximately 25% - still about 10% lower than the U.S. federal corporate tax rate.

For example, in 2010, formerly California-based Valeant Pharmaceuticals International (NYSE: VRX) merged with Canada's Biovail Corp. and re-domiciled in Canada. The company's tax rate is now less than 5%.

But a potential deal between BKW and THI will certainly be met with public scrutiny...

You see, tax inversions have drawn much fire recently from activist groups and politicians, including President Barack Obama, who recently criticized them as an "unpatriotic tax loophole."

Just last week, the U.S. Treasury Department announced it's in the process of putting forth regulations to curb tax inversions.

And in early August, we watched a near-deal between Chicago-based Walgreen Co. (NYSE: WAG) and Britain-based Alliance Boots die on the vine due to public shaming. It became increasingly clear that the company would pay a steep price with the American public if it moved its headquarters to cut its U.S. tax bill - WAG stock plummeted 14.5% on news of the merger talks. Walgreens decided to nix the deal, and said in a statement that its status as "an iconic American consumer retail company with a major portion of its revenues derived from government-funded reimbursement programs" was a significant factor in choosing not to go through with the inversion. (You can get the full story on the failed Walgreen deal here...).

In contrast though, news that the famously American brand Burger King may move its HQ to Canada to lower its tax bill has only bolstered BKW stock - a much more favorable sign of the public's approval of the deal.

Here's a breakdown of the BKW-THI deal details that has Burger King stock and Tim Hortons stock soaring:

  • Burger King's market value is about $9.6 billion, and Tim Hortons is about $8.4 billion, so together the restaurant companies are currently worth about $18 billion.
  • 3G Capital owns about 70% of BKW shares. It will continue to own the majority of the shares of the new company on a pro forma basis, with the remainder held by existing shareholders of Tim Hortons and Burger King.
  • The deal would create a stronger competitor to McDonald's Corp. (NYSE: MCD) and Taco Bell- and KFC-owner Yum! Brands (NYSE: YUM).
  • THI is the largest publicly traded restaurant chain in Canada, while BKW is the second-largest fast food hamburger chain in the world.
  • A person familiar with the matter said that an agreement could be reached as soon as this week. The two companies stated that they will not comment further on the merger unless a definitive agreement is reached, or the discussions are discontinued.

Burger King stock closed at $27.11 a share in the last trading session. It has already gone up 18.59% so far in 2014, and is good for a yield of $1.18 a share.

Another hot stock on the market right now is Tesla Motors Inc. (Nasdaq: TSLA). Year to date, TSLA is up 74.1% - and we think it'll double within the next 12 months. Here's why...

Tags: , , , , , , , NYSE: BKW, NYSE: THI, , , , , , , , , , , , ,

The post Burger King Stock (NYSE: BKW) Up 15% Pre-Market on Canada Tax Deal appeared first on Money Morning - Only the News You Can Profit From.

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.